BILL NUMBER: AB 831	CHAPTERED  09/27/99

	CHAPTER   490
	FILED WITH SECRETARY OF STATE   SEPTEMBER 27, 1999
	APPROVED BY GOVERNOR   SEPTEMBER 27, 1999
	PASSED THE ASSEMBLY   SEPTEMBER 8, 1999
	PASSED THE SENATE   SEPTEMBER 3, 1999
	AMENDED IN SENATE   JULY 6, 1999
	AMENDED IN ASSEMBLY   MAY 18, 1999
	AMENDED IN ASSEMBLY   MAY 6, 1999
	AMENDED IN ASSEMBLY   APRIL 27, 1999

INTRODUCED BY   Assembly Member Leach
   (Coauthors:  Assembly Members Ackerman, Campbell, Cox, Cunneen,
and Zettel)
   (Coauthors:  Senators Knight and Morrow)

                        FEBRUARY 24, 1999

   An act to amend Sections 17001, 17050, and 17101 of the
Corporations Code, relating to limited liability companies.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 831, Leach.  Limited liability companies:  formation.
   Existing provisions of the Beverly-Killea Limited Liability
Company Act authorize the creation of, and govern the activities of,
limited liability companies.  Existing law generally provides that
the members of a limited liability company are personally liable
under a judgment of a court or for any debt, obligation, or liability
of the company under the same or similar circumstances and to the
same extent as a shareholder of a corporation, except with respect to
the failure to hold meetings or to observe certain formalities at
meetings under specified conditions.  Existing law also generally
requires limited liability companies to have 2 or more members.
   This bill would permit limited liability companies to have one
member, and would provide that the members of a limited liability
company are subject to the common law of alter ego liability.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 17001 of the Corporations Code is amended to
read:
   17001.  Unless the context otherwise indicates, the following
definitions govern the construction of this title:
   (a) "Acknowledged" means that an instrument is either of the
following:
   (1) Formally acknowledged as provided in Article 3 (commencing
with Section 1180) of Chapter 4 of Title 4 of Part 4 of Division 2 of
the Civil Code.
   (2) Executed to include substantially the following wording
preceding the signature:  It is hereby declared that I am the person
who executed this instrument, which execution is my act and deed.
   Any certificate of acknowledgment taken without this state before
a notary public or a judge or clerk of a court of record having an
official seal need not be further authenticated.
   (b) "Articles of organization" means articles of organization
filed under Section 17050, including all amendments thereto or
restatements thereof, or, in the case of a foreign limited liability
company, all documents that serve a like function under the laws of
the jurisdiction in which the foreign limited liability company is
organized.
   (c) "Bankrupt" or "bankruptcy" means, with respect to any person,
being the subject of an order for relief under Title 11 of the United
States Code, or any successor statute or other statute in any
foreign jurisdiction having like import or effect.
   (d) "Capital account" means, unless otherwise provided in the
operating agreement, the amount of the capital interest of a member
in the limited liability company consisting of that member's original
contribution, as (1) increased by any additional contributions and
by that member's share of the limited liability company's profits,
and (2) decreased by any distribution to that member and by that
member's share of the limited liability company's losses.
   (e) "Constituent limited liability company" means a limited
liability company that is merged with or into one or more other
limited liability companies or other business entities and includes a
surviving limited liability company.
   (f) "Constituent other business entity" means any other business
entity that is merged with or into one or more limited liability
companies and includes a surviving other business entity.
   (g) "Contribution" means any money, property, or services
rendered, or a promissory note or other binding obligation to
contribute money or property, or to render services as permitted in
this title, which a member contributes to a limited liability company
as capital in that member's capacity as a member pursuant to an
agreement between the members, including an agreement as to value.
   (h) "Disappearing limited liability company" means a constituent
limited liability company that is not the surviving limited liability
company.
   (i) "Disappearing other business entity" means a constituent other
business entity that is not the surviving other business entity.
   (j) "Distribution" means the transfer of money or property by a
limited liability company to its members without consideration.
   (k) "Domestic" means organized under the laws of this state when
used in relation to any limited liability company, other business
entity or person (other than a natural person).
   (l) "Domestic corporation" means a corporation as defined in
Section 162.
   (m) "Domestic limited partnership" means a partnership formed by
two or more persons under the laws of this state and having one or
more general partners and one or more limited partners.
   (n) "Economic interest" means a person's right to share in the
income, gains, losses, deductions, credit, or similar items of, and
to receive distributions from, the limited liability company, but
does not include any other rights of a member, including, without
limitation, the right to vote or to participate in management, or,
except as provided in Section 17106, any right to information
concerning the business and affairs of the limited liability company.

   (o) (RESERVED)
   (p) "Foreign corporation" means a corporation formed under the
laws of any state other than this state or under the laws of the
United States or of a foreign country.
   (q) "Foreign limited liability company" means either (1) an entity
formed under the limited liability company laws of any state other
than this state, or (2) an entity organized under the laws of any
foreign country that is (A) an unincorporated association, (B)
organized under a statute pursuant to which an association may be
formed that affords each of its members limited liability with
respect to the liabilities of the entity, and (C) not an entity that
is required to be registered or qualified pursuant to the provisions
of Title 1 (commencing with Section 100) or Title 2 (commencing with
Section 15001); but the term "foreign limited liability company" does
not include a foreign association, as defined in Section 170.
   (r) "Foreign limited partnership" means a partnership formed under
the laws of any state other than this state or under the laws of a
foreign country and having as partners one or more general partners
and one or more limited partners or their equivalents under any name.

   (s) "Foreign other business entity" means any other business
entity formed under the laws of any state other than this state or
under the laws of the United States or of a foreign country.
   (t) "Limited liability company" or "domestic limited liability
company" means an entity having one or more members that is organized
under this title and is subject to the provisions of Section 17101.

   (u) "Mail" unless otherwise provided in the operating agreement,
means first-class mail, postage prepaid, unless registered mail is
specified.  Registered mail includes certified mail.
   (v) "Majority in interest of the members," unless otherwise
provided in the operating agreement, means more than 50 percent of
the interests of members in current profits of the limited liability
company.
   (w) "Manager" means a person elected by the members of a limited
liability company to manage the limited liability company if the
articles of organization contain the statement referred to in
subdivision (b) of Section 17151 or, if the articles of organization
do not contain that statement, "manager" means each of the members of
the limited liability company.
   (x) "Member" means a person who:
   (1) Has been admitted to a limited liability company as a member
in accordance with the articles of organization or operating
agreement, or an assignee of an interest in a limited liability
company who has become a member pursuant to Section 17303.
   (2) Has not resigned, withdrawn, or been expelled as a member or,
if other than an individual, been dissolved.
   (y) "Member of record" means a member named as a member on the
list maintained in accordance with paragraph (1) of subdivision (a)
of Section 17058.
   (z) "Membership interest" means a member's rights in the limited
liability company, collectively, including the member's economic
interest, any right to vote or participate in management, and any
right to information concerning the business and affairs of the
limited liability company provided by this title.
   (aa) "Officer" means any person elected or appointed pursuant to
Section 17154.
   (ab) "Operating agreement" means any agreement, written or oral,
between all of the members as to the affairs of a limited liability
company and the conduct of its business in any manner not
inconsistent with law or the articles of organization, including all
amendments thereto, or, in the case of a foreign limited liability
company, all documents that serve a like function under the laws of
the jurisdiction in which the foreign limited liability company is
organized.  The term "operating agreement" may include, without more,
an agreement between all the members to organize a limited liability
company pursuant to the provisions of this title.
   (ac) "Other business entity" means a corporation, limited
partnership, general partnership, business trust, real estate
investment trust, or an unincorporated association (other than a
nonprofit association), but excluding a domestic limited liability
company and a foreign limited liability company.
   (ad) "Parent," when used in relation to a specified limited
liability company, means a person who owns, directly or indirectly,
membership interests possessing more than 50 percent of the voting
power of the specified limited liability company.  When used in
relation to a specified corporation or limited partnership, the term
"parent" shall have the meanings set forth in Section 1200 and
subdivision (v) of Section 15611, respectively.
   (ae) "Person" means an individual, partnership, limited
partnership, trust, estate, association, corporation, limited
liability company, or other entity, whether domestic or foreign.
   (af) (RESERVED)
   (ag) (RESERVED)
   (ah) (RESERVED)
   (ai) "Proxy," unless otherwise provided in the operating
agreement, means a written authorization signed or an electronic
transmission authorized by a member or the member's attorney-in-fact
giving another person the power to exercise the voting rights of that
member.  "Signed," for the purpose of this section, means the
placing of the member's name on the proxy (whether by manual
signature, typewriting, telegraphic or electronic transmission, or
otherwise) by the member or member's attorney-in-fact.
   A proxy may be transmitted by an oral telephonic transmission if
it is submitted with information from which it may be determined that
the proxy was authorized by the member, or by the member's
attorney-in-fact.
   (aj) "Return of capital," unless otherwise provided in the
operating agreement, means any distribution to a member to the extent
that the member's capital account, immediately after the
distribution, is less than the amount of that member's contributions
to the limited liability company as reduced by prior distributions
that were a return of capital.
   (ak) "State" means a state, territory, or possession of the United
States, the District of Columbia, or the Commonwealth of Puerto
Rico.
   (al) "Subsidiary of a specified limited liability company" means a
limited liability company or other business entity in which shares,
interests, or other securities possessing more than 50 percent of the
voting power are owned by the specified limited liability company.
   (am) "Surviving limited liability company" means a limited
liability company into which one or more other limited liability
companies or other business entities are merged.
   (an) "Surviving other business entity" means an other business
entity into which one or more limited liability companies are merged.

   (ao) "Time a notice is given or sent," unless otherwise expressly
provided, means the time a written notice is deposited in the United
States mail ; is personally delivered to the recipient, is delivered
to a common carrier for transmission, or is actually transmitted by
the person giving the notice by electronic means, to the recipient;
or the time any oral notice is communicated, in person or by
telephone, to the recipient or to a person at the office of the
recipient who the person giving the notice has reason to believe will
promptly communicate it to the recipient.
   (ap) "Transact intrastate business" means to enter into repeated
and successive transactions of business in this state, other than in
interstate or foreign commerce.
   (1) Without excluding other activities which may not be considered
to be transacting intrastate business, a foreign limited liability
company shall not be considered to be transacting intrastate business
merely because its subsidiary transacts intrastate business, or
merely because of its status as any one or more of the following:
   (A) A shareholder of a domestic corporation.
   (B) A shareholder of a foreign corporation transacting intrastate
business.
   (C) A limited partner of a foreign limited partnership transacting
intrastate business.
   (D) A limited partner of a domestic limited partnership.
   (E) A member or manager of a foreign limited liability company
transacting intrastate business.
   (F) A member or manager of a domestic limited liability company.
   (2) Without excluding other activities which may not be considered
to be transacting intrastate business, a foreign limited liability
company shall not be considered to be transacting intrastate business
within the meaning of this subdivision solely by reason of carrying
on in this state any one or more of the following activities:
   (A) Maintaining or defending any action or suit or any
administrative or arbitration proceeding, or effecting the settlement
thereof, or the settlement of claims or disputes.
   (B) Holding meetings of its managers or members or carrying on any
other activities concerning its internal affairs.
   (C) Maintaining bank accounts.
   (D) Maintaining offices or agencies for the transfer, exchange,
and registration of the foreign limited liability company's
securities or maintaining trustees or depositaries with respect to
those securities.
   (E) Effecting sales through independent contractors.
   (F) Soliciting or procuring orders, whether by mail or through
employees or agents or otherwise, where those orders require
acceptance without this state before becoming binding contracts.
   (G) Creating or acquiring evidences of debt or mortgages, liens,
or security interests in real or personal property.
   (H) Securing or collecting debts or enforcing mortgages and
security interests in property securing the debts.
   (I) Conducting an isolated transaction that is completed within
180 days and not in the course of a number of repeated transactions
of a like nature.
   (3) A person shall not be deemed to be transacting intrastate
business in this state merely because of its status as a member or
manager of a domestic limited liability company or a foreign limited
liability company registered to transact intrastate business in this
state.
   (aq) "Vote" includes authorization by written consent.
   (ar) "Voting power" means the power to vote on any matter at the
time any determination of voting power is made and does not include
the right to vote upon the happening of some condition or event which
has not yet occurred.
   (as) "Withdrawal" includes the resignation or retirement of a
member as a member.
   (at) "Written" or "in writing" includes facsimile and telegraphic
communication.
  SEC. 2.  Section 17050 of the Corporations Code is amended to read:

   17050.  (a) In order to form a limited liability company, one or
more persons shall execute and file articles of organization with,
and on a form prescribed by, the Secretary of State and, either
before or after the filing of articles of organization, the members
shall have entered into an operating agreement.  The person or
persons who execute and file the articles of organization may, but
need not, be members of the limited liability company.
   (b) A limited liability company shall have one or more members.
   (c) The existence of a limited liability company begins upon the
filing of the articles of organization.  For all purposes, a copy of
the articles of organization duly certified by the Secretary of State
is conclusive evidence of the formation of a limited liability
company and prima facie evidence of its existence.
  SEC. 3.  Section 17101 of the Corporations Code is amended to read:

   17101.  (a) Except as otherwise provided in Section 17254 or in
subdivision (e), no member of a limited liability company shall be
personally liable under any judgment of a court, or in any other
manner, for any debt, obligation, or liability of the limited
liability company, whether that liability or obligation arises in
contract, tort, or otherwise, solely by reason of being a member of
the limited liability company.
   (b) A member of a limited liability company shall be subject to
liability under the common law governing alter ego liability, and
shall also be personally liable under a judgment of a court or for
any debt, obligation, or liability of the limited liability company,
whether that liability or obligation arises in contract, tort, or
otherwise, under the same or similar circumstances and to the same
extent as a shareholder of a corporation may be personally liable for
any debt, obligation, or liability of the corporation; except that
the failure to hold meetings of members or managers or the failure to
observe formalities pertaining to the calling or conduct of meetings
shall not be considered a factor tending to establish that a member
or the members have alter ego or personal liability for any debt,
obligation, or liability of the limited liability company where the
articles of organization or operating agreement do not expressly
require the holding of meetings of members or managers.
   (c) Nothing in this section shall be construed to affect the
liability of a member of a limited liability company (1) to third
parties for the member's participation in tortious conduct, or (2)
pursuant to the terms of a written guarantee or other contractual
obligation entered into by the member, other than an operating
agreement.
   (d) A limited liability company or foreign limited liability
company shall carry insurance or provide an undertaking to the same
extent and in the same amount as is required by any law, rule, or
regulation of this state that would be applicable to the limited
liability company or foreign limited liability company were it a
corporation organized and existing or duly qualified for the
transaction of intrastate business under the General Corporation Law.

   (e) Notwithstanding subdivision (a), a member of a limited
liability company may agree to be obligated personally for any or all
of the debts, obligations, and liabilities of the limited liability
company as long as the agreement to be so obligated is set forth in
the articles of organization or in a written operating agreement that
specifically references this subdivision.
